JANTA MACHINE TOOLS v. STATE OF U.P. & ORS.

The Judgment of the Court was delivered by

RANGANATHAN, J. The petitioner is a concern engaged in the business of manufacture of electric motors, pump sets and their parts. It applied for exemption from sales tax in respect of the goods . C manufactured by it in terms of a notification issued by the State Government on 30.9.1982 under section 4A of the Uttar Pradesh Sales Tax Act, 1948 (hereinafter called the 'Act'). This application was rejected by a Division Level Committee by an order dated 9.2.1987 and a further review application was also dismissed on 27 .10.1987. Thereupon the appellant filed a writ petiti()n which was also rejected D by the High Court by a short order dated 7 .12 .1987. Aggrieved by this denial of the exemption, which it claims it is entitled to, the appellant has preferred this appeal.

Section 4A of the Act reads as under: E "4-A. Exemption from sales tax of certain goods for specified period-

(1) Notwithstanding anything cotained in section 3 or section 3-A, where the State Government is of the opinion that it is necessary so to do for increasing the production of any goods or for promoting the development of in any dis- tricts or parts of districts in particular, it may on application or otherwise, by notification, declare that the turnover of sales in respect of such goods by the manufacturer thereof shall, during such period not exceeding seven years from the date of starting production by such manufacturer, and subject to such conditions as may be specified, be exempt from sales tax or be liable to tax at such reduced rate as it may fix.

(2)1! shall be lawful for the State Gc>Vem,!llent to specify in the notification under s11b-sec!iC1n (1) that t!ie H

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exemption from, or reduction in, the rate of tax shaIJ be A admissibie-

(a) generaIJy in respect of aIJ such goods manufactured subsequent to the date ~f such notification; or

B (b) in respect of such of those goods only as are manufac- tured in a new unit, the date of starting production whereof falls on or after the first day of October, 1982; or

(c) only if the manufacturer had not discontinued produc- tion of such goods for a period exceeding six months at a stretch in any assessment year. c Explanation-For the purposes of this section-

(i) 'new unit' means a factory or workshop using machi- nery, accessories or components not already used or D acquired for use in any other factory or workshop in India but does not include any factory or workshop established on the site of an existing factory or workshop manufactur- ing the same goods or any addition to or extension of an existing factory or workshop; and

E (ii) 'date of starting production' means the date on which any raw material required for use in the manufacture or packing of the specified goods is purcahsed for the first time or the date of installation of power connection, where needed, whichever is later.

F In pursuance of the above section, the State Government published a scheme for the grant of exemption from sales tax to certain industrial units in the State. The scheme, according to its introduction, had been introduced "in order to encourage capital investment and establishment of new industrial units in the State''. It granted exemp- tion to the industrial units established in certain areas of the State G during the period from '1.10.1982 to 31.3.1985 and producing certain categories of goods. It is not necessary to refer in detail to the pro- ); visions of the scheme or other conditions of exemption. It is sufficient to say that this exemption was conferred only on units established on or after 1.10.1982 but before 31.3.1985. The scheme also makes it clear that though it referred to units "established" this really is a H reference to the date of commencement of production by the industrial

jANTA MACHINE TOOLS v. STATE OF U.P. IRANGANATHAN, J.{ 277

unit. This is also in accord with the terms of the statute and in par- A ticular sub-section (2) of 4A. The appellant's claim to exemption has been rejected on a very short ground, namely, that it had not com- menced production after 1.10.1982.

fn the application filed by the appellant for exemption the appel- lant had mentioned that the date of actual commencement of use of B electricity for production was the 4th of December, 1982, which was also the actual date of commencement of production. The appellant aiso claimed that upto 30.9.1984 it had produced and sold electric motor parts for Rs.2,70,590. The General Managers of the District Industrial Centres at Deoband and Saharanpur and the Assistant Engineer of the Industrial State of Roorkee endorsed the following recommendation on the application: c

" ....... I have checked with the use of power and other sources that the unit started actual production from 4.12.1982 and the production made is self manufactured and is within the prescribed production capacity. I am fully D satisfied with the facts produced by the Unit and I recom- mend that this unit is eligible to get exemption from sales tax/inter state sales tax ...... with effect from date of '':;4.. production commencement for 5-6-7 years under section 4-A of the Sales Tax Act vide G.O. No. 8244-Bha/18-11- 231(A) Bha/39, dated30.9.82." E . The difficulty in the appellant's way appears to have been created by a certificate which had been produced by it before the Division Level Committee along with its application. This purported to be a certificate by a firm known as Krishnna Trading Co. (in which the proprietor of the appellant was a partner). This certificate dated F 4.12.1981 reads as follows:

"It is certified that the Trial Production of Kupla Bhatti was made today is 4.12.1981 expenses for which were in- curred by our company by purchasing raw material for its own expenses under the agreement dated 15.5.1981 en- G tered into. M/s Janta Machine Tools was assured by the company to supply very soon all the remaining machines and installing them and making its trial production at its own expenses."

The Division Level Committee, while rejecting the application H

278 SUPREME COURT REPORTS [1989] l S.C.R.

dated 9.2.1987, essentially gave only one reason for the rejection. It A was stated that the date of the alleged trial production was really the date of commencement of production and this fell prior to 1.10.1982.

As stated earlier the assessee preferred a review application pointing out that the trial production could not be treated as com- B mencement of actual production. This review application was disposed of on 27 .10.1987. In its order the Committee observed:

"On joint inquiry into the reality of your unit being con- ducted by the General Manager and sales tax officer of Deoband Industries Department they have reported that Sliri Suresh Datt Sharma the proprietor of Mis Jania c Machine Tools is partner of one third share in M/s Krishna Trading Company also. No purchase of raw material was declared by Mis Krishna Trading Company in the year 1981-82, and therefore, the certificate of trial production issued by M/s Krishna Trading Company on 4.12.1981 is baseless and untrue. In joint inquiry report it is also clear that your unit has purchased from Mis Krishna Trading Company Kupla etc. of Rs.69,000 on 21.5.81, whereas Mis Krishna Trading Company have declared sale of Rs.13,035 only in 1981-82 as per file of the Sales Tax Department. In the joint inquiry Report it is also mentioned that your unit got electricity on 21.11.1982 and on inquiry the unit informed that the trial production was done with the help of a generator. Your unit could not give any certificate for ,. purchasing or hiring a generator and now it has declared to have hired the generator for 4-5 hours from Mis Mitra Industries Deoband. In the inquiry report it is also made - F clear that a unit cannot use a generator of other unit with- out prior permission of the electriciy department.

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On the above discussion it is concluded that the unit in G question wants to (get) illegal benefit of exemption from sales tax by producing wrong facts. The trial production done by M/s. Krishna Trading Company on 4.12.1981 is proved to have been done by the unit in question itself and not by them. Thus, the unit was established before 1.10.82. The unit established before 1.10.82 is therefore opt entitl~\I H to exemption from sales tax."

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~- In our opinion, the rejection of the assessee's application A proceeds on a total misconception of the facts. nie conclusion of the Division Level Committee is that production was commenced by the appellant on 4.12.81 but this conclusion is based on no evidence. It is true that the appellant produced a certificate showing that some pro- ductiOn was done on 4.12.1981 but the appellant's case was that this )I, was merely a trial production. It is not quite clear whether the District B ' Level Committee completely doubts any trial production having taken place at all, or whether its conclusion is that there was a trial produc- lion, on 4.12.1981. If its conclusion is the former one, it does not affect

i the appellant's claim. Assuming that the Committee has come to the conclusion that the production on 4.12.81 was conducted not by M/s Krishna Trading Company but by the appellant itself, the fact still remains that what had happened on that date was only trial pro- c ·~ duction. The mere fact that a certificate by M/s Krishna Trading is disbelieved cannot lead to the conclusion that the assessee had pro- duced goods on 4.12.81. If one is to go by the definition contained in the explanation to section 4A for determining when the production started, one has to concentrate on the date of purchase of raw materials or on the date on which the electricity was brought into use for commercial production. The appellant's claim that it had manu- factured goods by 30.9.1984 is not denied. Production had, therefore, ':..l.... commenced before 31.3.1985. There is no suggestion by the Depart- men! or the Committee, and there is no material to show that the appellant had purchased raw materials sufficient to carry out normal commercial production at any time prior to 1.10.82. It is an admitted fact that the assessee was able fo obtain electricity for use for commer- cial production only in November 1982. This lends support to the

~ appellant's contention that the production could not have been effected by the assessee prior to that date. In fact, this is a point on which emphasis is laid in the order dated 27.10.1987. That being so, there is no iota of evidence or material on the basis of which the appellant's claim that it had started production in December 1982 could have been rejected. On the other hand, the recommendation and endorsement of the General Manager, District Industries CentTe, which has been extracted earlier, also supports the appellant's con ten- tion that it had started production on 4.12.1982 and this report was given after verifying the actual position on the spot. -{ For the reasons above mentioned we are of the opinion that the denial of the exemption to the appellant under the notification dated 3_0.9.82 was not justified. The rejection of the appellant's application in this regard is quashed arid the appellant is declated entitled to the H

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A exemption in terms of the notification. We should not be understood, A: however, to have expressed any opinion as to the amount of exemp- tion available to the appellant under the notification. That will be a matter for consideration of the authorities in respect of each of the years concerned in respect of which the claim is made for exemption. B The appeal stands allowed, but in the circumstances, we make no order as to costs.

G.N. Appeal allowed.